TRANSMISSION MECHANISM OF MONETARY POLICY THROUGH ASSET PRICE IN INDONESIA IN THE PERIOD 2002-2011
DOI:
https://doi.org/10.21776/ub.jiae.2016.006.01.7Keywords:
Transmission mechanism, Monetary policy, DVARAbstract
The objective of this study is to identify the transmission mechanism of monetary policy through the assets price in Indonesia. In practice, Bank of Indonesia and the government implements monetary policies by reducing the Loan to Value ratio and by implementing expansionary policy through Housing Finance Liquidy Facility. The method used in this study is the Vector Autoregression First Difference (DVAR). The specific variables used in this study include long-term mortgage interest rates, housing price index, composite stock price index, hot money, money supply and Gross Dometic Product with the observation period starting in 2002:1-2011:12. Some procedures that will be used to support VAR specification including stationary test, cointegration test, Impulse Response Function, and Variance Decompositiion. Based on the DVAR estimates, the asset prices affect the output through the money supply. These results suggest that asset prices do not directly affect output but through some transmission mechanism. The contraction monetary policy implemented by the monetary authority is therefore effective enough to anticipate economic heating caused by the change in asset price.
References
Ascarya (2012),Flow and Effectiveness of Monetary Policy Transmission Dual in Indonesia, Bulletin of Monetary Economics and Banking, Vol 14, 283-315.
Enders, W. (1995), Applied Time Series Econometrics, Wiley.
Engle, R. F. And Granger, C.W.J (1987), Co-Integration and Error Correction: Representation, Estimation, and Testing, Journal of the Econometric Society, Vol 55 No. 2, 251-276.
Gujarati, D. N. and Porter, D. C. (2009), Basic Econometrics, McGraw-Hill International Edition.
Johansyad, D. A. (2012), Rules LTV mortgages and DP CLA: Joint Pursue Healthy Corridor, Outlets Info Bank Indonesia Newsletter, Issue 26.
Mishkin, F. (2001), The Transmission Mechanism and the Role of Asset Prices in Monetary Policy, NBER Working Paper 8617.
Siregar, D. (2004), Asset Management , PT Gramedia Pustaka Utama, Jakarta.
Taylor, J. B., (1995), The Monetary Transmission Mechanism: an Empirical Framework, Journal of Economic Perspectives, Vol 9, 11-26.
Warjiyo, P and Solikin (2004), Bank Indonesia Central Bank of the Republic of Indonesia: An Introduction, Education Center and Central Banking Studies (PPSK) Bank Indonesia, Jakarta.
Wesche, K. A. and Gerlach, S (2008), Ensuring Financial Stability: Financial Structure and the Impact of Monetary Policy on Asset Prices, Institute for Empirical Research in Economics University of Zurich, Working Paper No. 361.
Xu, X., and Tao, C (2011), The Effect of Monetary Policy on Real Estate Price Growth in China, Pacific-Basin Finance Journal No. 20, 62-77.
Yudanto, N. and Santoso, M.S. (1998), The Impact of Monetary Crisis on Real Sector, Bulletin of Economic, Monetary and Banking, Bank Indonesia.
